Credit unions, for instance, tend to offer higher rates on deposits than banks. You can also find more generous rates at institutions farther away if you're willing to bank online.

Sallie Mae Bank, for instance, offers savings accounts with an annual percentage yield of 1 percent that's compounded daily. On a $500 deposit, the balance would grow by $5.03 the first year. Not much, but better than the 20 cents that Simon will earn.

Check Bankrate.com to find out the highest rates on savings accounts being offered in your city or nationwide.

Or consider putting money in a certificate of deposit, in which the rates are higher. The drawback is that money will be tied up during the term of the CD and you will forfeit part of the earnings if you withdraw the cash early.

Parents as bankers The experience of seeing a savings account grow with interest has a powerful impact on children, says Lew Mandell, a financial economist with an expertise in children's financial literacy. But if banks won't provide that experience, parents can do so themselves, he says.

Mandell suggest that parents pay the interest, depositing the money quarterly in the child's savings account. It doesn't have to cost much, he says. At 3 percent annual rate, parents would pay out a little more than $15 the first year on a $500 initial deposit.

"To make it more interesting, think of giving the child 5 percent a year," he says. At that rate, parents would pay about $25.50 the first year. After 10 years, the child's account would grow to $821.81.

When higher interest rates return, Mandell says, parents can stop playing banker.

Compound examples There are lots of ways to dramatically illustrate the power of compounding to children on paper.

The American Bankers Association Education Foundation does so by showing what happens when you put aside a penny one day and double it the next. Each day thereafter, the money is doubled. By the 30th day, the one penny has grown to $5,368,709.12.

That's an interest rate of 100 percent. It might make an impression on youngsters, of course, but it isn't anywhere near reality.

But Stuart Ritter, a financial planner with T. Rowe Price, says that instead of focusing on compound interest, parents should use savings accounts now to teach lessons about setting goals and the importance of regularly saving.

"What we really want to get across to kids is the power of starting early, the power of their own savings," Ritter says.

Here's a Price example of that: Take two workers who each invest $1,000 annually for five years — $5,000 total for each — and then stop contributing to their accounts. Both earn a 7 percent annual return. The only difference: one starts investing at age 30, the other at age 25.

By age 65, the worker who started investing later would have a balance of $47,000. But the account of the worker who started investing earlier would total $66,000 at age 65 because the money had more time to grow.

Kromkowski, the dad trying to teach his son about compound interest, says he has explored the options. He's considering moving his son's account from the bank to a credit union that pays a slightly higher rate but is farther from the family's home.

Then again, he says, "Maybe the interest rates will go up."

eileen.ambrose@baltsun.com

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